Persistent inflation, another Fed policy mistake, and recession fears have unnerved investors. It has been several decades since the stock market has had such a long streak of heavy losses. US stocks continue to be vulnerable to further losses until the Fed indicates it’s ready to stop tightening monetary policy. Investors are pricing in expectations that a fast pace of hefty rate hikes will pull the US economy into a recession. Federal Reserve officials agreed when they met earlier this month that they may have to raise interest rates to levels that would weaken the economy as part of their drive to curb inflation, which is near a four-decade high.

But, inflation could be higher for longer and we are not going to like what comes next.

Future Wealth’s View

The biggest problem is trust and credibility. Markets are volatile because investors are not confident that the Federal Reserve will stop inflation.  Trust is like launching yourself into the air, hoping that your partner will catch you. But you’d better have a safety net too. A good one. The analogy is especially true for investors who are now struggling to figure out what the future holds for their portfolio if the Fed gets it wrong again. Certainly, the market has priced in the possibility that the Fed keeps raising interest rates until the economy dips into a recession and then realizes that they went too far.

And so, we have to take sides to determine which way to invest – do you stay safe if the Fed gets it wrong again or do you start taking advantage of the sell off in the stock market and start buying hoping that the Fed will get it right and avoid a recession?

To quote a famous line – “I could tell you, but then I would have to kill you”. That could also be another way of saying “It will cost you” or more simply, “I don’t know”.